What is the average period of collection?
Sometimes it is referred to as the ratio of collection, the average period of collection is related to the relationship between receivables and the time frame in which these outstanding payments are accepted. The average collection time is essentially a calculation of the average period that requires excellent invoices to be paid after the issue. Here are several reasons why understanding the average collection period is important for any business. Rather than hoping that all customers pay immediately within thirty days of the invoice, the average calculation of the collection period replaces the expectations of reality how quickly the customer base as a whole selects payments. This information makes it easier to plan payments for services provided to Air own partners of the supplier and also arrange for the funds to manage everyday operations, meet payments and other important aspects of business.
Further valuable use of the average collection period JE that society can soon imitate unfavorable trends. If the average collection period at the same time last year was 34 days and now it is up to 42 days, the situation carries an investigation. The reasons can be immediately identifiable, such as the acquisition of a high -volume customer in the last year, awarded the sixties of payment. On the other hand, there may be long -term clients whose payment formulas have changed. This may include factors by the customer or in invoices that are handed over to the customer.
As an example, if the customer announced a few months ago about changing the postal address, but the change in the case, then the invoice will have to be handed over by the postal service. This could add a few days to the process itself. Secondly, the client could change the procedures of his obligations and now reduce checks to his sellers every other week, instead of a week. Looking at where there have been changes and why it can reveal problems that can be easily solved and solved, and so o oBnovit a more advantageous period of collection.
understanding that there is some outflow and flow in all collection periods, posts should be made when calculating the average collection period. The occurrence of holidays, seasonal activities such as holidays and natural factors such as weather can have an impact on the speed with which payments are received from customers. In view of these factors, but also an investigation to see if there are recurrent problems that have an impact on the average collection period, it will help ensure that the company receives payments for service in most way.